I can't see how this helps the quality perception of Deloitte. How can you trust the strategic advice of a company that had to file for for bankrupty itself? Maybe they should have applied their five forces model more rigorously...

Indeed the firm has had several years of low profit growth, but the firm isn't actually on the brink of insolvency.

This acquisition was a strategic move initiated by monitor's leadership to improve the firm's position in the long run, it wasn't something forced upon the firm because of bankruptcy or a hostile takeover.

Indeed the firm has had several years of low profit growth, but the firm isn't actually on the brink of insolvency.

This acquisition was a strategic move initiated by monitor's leadership to improve the firm's position in the long run, it wasn't something forced upon the firm because of bankruptcy or a hostile takeover.

Except the firm no longer exists after this move, right?. The insider message sounds like Monitor consultants trying to placate their employees...

Deloitte has been trying to make a push into higher-end consulting for quite some time now. It's dilutive to their rate card to be perceived solely as a body shop, so this acquisition makes some sense from that perspective. And while it's true that Chapter 11 allows the deal to go through faster, there is absolutely no way Monitor or Deloitte would actually want that.

Why buy a consultancy in the first place? You buy it for the name. Monitor's clients are not theirs by right. Clients work with Monitor because it has a strong reputation, and they (in all likelihood) they have worked with some of the partners for years. There is no 'secret sauce' that makes McKinsey, Bain, BCG or Booz any better than Monitor. The business model across those firms is remarkably similar (save McKinsey, which has started to branch into more IT contracts than any of the others). You sell work, staff it, deliver it, and sell some more. A huge portion of a firm's ability to sell business derives largely from its brand. And as such, a large portion of the valuation of the business is tied up in goodwill intangibles (in this case, brand value).

Deloitte would certainly get a better price for purchasing Monitor after it filed Chapter 11, as Monitor's valuation would get depressed due to an amortization of goodwill intangibles. But that doesn't make it a better deal. Monitor is worth something because its brand it worth something. Because the vast majority of Monitor's work is corporate, not governmental, it does not have much of a backlog of 'sold and funded' contracts. In valuing a consultancy, you look at not just existing revenues and EBITDA, but also the backlog of future work that has already been sold. The corporate world does not generally grant long-dated, multi-year contracts, and as such, Monitor will not have much of a backlog.

Moreover, most consultancies have only 3 months of operating cash on hand at any given time. I haven't actually looked through Monitor's financials, but it's safe to assume they weren't sitting on a pile of cash immediately before filing for bankruptcy. And if they were smart (which is a slightly less robust assumption), they don't own much in the way of PP&E. They probably only own the laptops they give to consultants, and a handful of other pieces of minor tech. They probably lease the vast majority of their offices around the world, so they aren't likely to have much in the way of tangible assets.

The one thing they have is brand value. You would NEVER choose to erode that by filing for bankruptcy, especially when you're in the business of giving other businesses strategic advice. Why would a management team at a Fortune 500 client be interested in taking lessons from someone that has driven a business into the ground? I guess there are some lessons learned from making such mistakes, but that simply cannot be Monitor's game plan.

Deloitte would have been better off buying the business before Monitor filed for bankruptcy if it intends to keep using Monitor's brand name. If it doesn't wish to call any portion of its business 'Monitor,' then I don't see why you'd buy it in the first place. You don't actually get anything in buying Monitor if you don't keep the name. You get a few dozen partners that you're going to have to lock up with golden handcuffs for at least 3 years because you're basically buying their relationships. But there are much better ways of doing that than monitizing the equity stake of the partners at Monitor through a wholesale acquisition.

From Deloitte's perspective, I don't see how this acquisition makes sense. Unless the anticipated rise in the prestige of the firm (whatever the fuck that means) actually turns out to be accretive to Deloitte's existing rate cards (of which, there are many), I don't see why they would make such an acquisition. Monitor might be more prestigious in the minds of 22-year-olds and 27-year-olds coming out of undergrad and b-school respectively, but who cares about the opinioins of non-real adults? Deloitte has a FAR more recognizable brand name than Monitor internationally. Monitor adds a bit of boutique flare to Deloitte's business, and there are a few executives that buy into that model, but unless it was REALLY cheap, I don't see why you'd purchase a bankrupt consultancy.

I personally would not consider Deloitte a prestigious place to work given its not very hard to land a job there and the pay isn't adequate to compensate you for the hours you have to work but definitely a very above average job with well defined career progression.

I am just curious as to how you made those deductions? Their pay, at least at the lower levels, is really similar to the others. Also when I met their employees it didn't strike me that MBB was really all that better. Really it seems to be past prestige oriented.

But to the post at hand. I really have no idea what is going on here. I almost think it is a power grab by two mid-tier consulting firms to try and move to the top tier. Lets be honest though, unless you are the one making the decision we have no idea.

I'm not sure what the purchase price was. If I were guessing, I would say they used something like 8x EBITDA for the valuation. I think the closest comparison to the deal is the PWC purchase of Diamond, but the Carlyle deal with Booz Allen Hamilton is a reasonable comp as well. I don't know the terms of the Diamond deal, but the Booz deal was something like $2.54 billion for 81% of the voting rights and 79% of the equity when Booz Allen had something like $3.7 billion in revenues and only $400 million in EBITDA. That deal cleaved off about 15% of the company (which became Booz & Company), so it's not a perfect analog.

I think Booz Allen has a EV/EBITDA of ~11.5x. I think Booz is a better brand name, though, so that will push its valuation up. Also, a lot of the contracts Booz Allen has are government contracts, so the revenues are more sure than those of Monitor, so that will positively impact the valuation for Booz. I'd say Monitor (with the bankruptcy and the lack of multi-year contracts) would be worth something like 8x EBITDA. But if someone finds the particulars of the deal terms, I would be interested in reading the salient pieces of information.

Curious about Monitor Europe and other divisions. It's interesting to note that this is the second time that Deloitte is trying to buy a consulting firm with good reputation, at the end of 2010 Deloitte Europe was in advanced contacts with Roland Berger Strategy Consultants but the deal eventually died...

Curious about Monitor Europe and other divisions. It's interesting to note that this is the second time that Deloitte is trying to buy a consulting firm with good reputation, at the end of 2010 Deloitte Europe was in advanced contacts with Roland Berger Strategy Consultants but the deal eventually died...

other divisions going to other deloitte firms (i.e. Deloitte Consulting offices in other countries).

not surprised about the pursuit of strategy firms.... strategy work typically sells at higher rates. i think monitor got in trouble by staying away from higher-revenue, lower-margin integration and implementation work. even MBB can't survive as pure play strategy firms. as mentioned above, McK now has technology, and the other two have a good amount of implementation and integration work. this move might make sense for both parties in terms of diversifying the revenue mix - Deloitte brings larger, longer, more stable contracts, Monitor brings high margin, but less stable contracts.

still not sure about the need for chapter 11, and why they would nix the Monitor brand (if they're planning to do so).

Thought the service industry acquisitions were more acqi-hires. Acquire Monitor, keep their partners, and MDs who has all the client relationships to leverage. Just use the CEO as an escape goat for the bankruptcy and continue business as usual.

Deloitte Consulting US is considered pretty solid. However, Deloitte Consulting is not considered as prestigious in other markets. Acquisitions like this and the Roland Berger attempt help them overcome the huge barriers to entry in pure strategy work that are a result of the network effects of the industry. It's a pretty classical reason to buy rather than build. The struggles of Monitor Group probably have little to do with a solid performing partner's relationship with their clients. If he/she was a solid advisor before, he/she will still be a solid advisor now. They are probably simply buying the partners with some relationships and paying off the equity shares to remaining partners who couldn't find business. It's easier to lock up those partners in Chapter 11 than let them become a "free agent" and go to some other firm. And getting them in Chapter 11 is cheaper than buying them out pre-Chapter 11.

Great post by brotherbear, like the analysis, but i don't actually quite agree with the last point. Yes, DDT is a much better brand overall given its massive audit biz. But when it comes to consulting, CEOs dont make their decision based on how well-known you are in general, but how much relevant experience you have, how prestigious you are in consulting and... how good the partner's golf skill is. I don't think the chp 11 will affect Monitor's current biz relationship that much, but may not be helpful in terms of new biz development...

Deloitte Consulting US is considered pretty solid. However, Deloitte Consulting is not considered as prestigious in other markets. Acquisitions like this and the Roland Berger attempt help them overcome the huge barriers to entry in pure strategy work that are a result of the network effects of the industry. It's a pretty classical reason to buy rather than build. The struggles of Monitor Group probably have little to do with a solid performing partner's relationship with their clients. If he/she was a solid advisor before, he/she will still be a solid advisor now. They are probably simply buying the partners with some relationships and paying off the equity shares to remaining partners who couldn't find business. It's easier to lock up those partners in Chapter 11 than let them become a "free agent" and go to some other firm. And getting them in Chapter 11 is cheaper than buying them out pre-Chapter 11.

This would make sense, if Deloitte had bought a company with a strong brand name in countries where Deloitte itself is rather weak (as you described, that was their reason for trying to buy Roland Berger). However, Monitor is also mostly focused on the US market. They even closed down lots of their European offices in the last years. So I really don't see how this aqcuisition will help Deloitte.

I think Booz Allen has a EV/EBITDA of ~11.5x. I think Booz is a better brand name, though, so that will push its valuation up. Also, a lot of the contracts Booz Allen has are government contracts, so the revenues are more sure than those of Monitor, so that will positively impact the valuation for Booz. I'd say Monitor (with the bankruptcy and the lack of multi-year contracts) would be worth something like 8x EBITDA. But if someone finds the particulars of the deal terms, I would be interested in reading the salient pieces of information.

Just to nitpick, a better brand name is already reflected in EBITDA unless the brand name implies better growth opportunities or lower risk..

And on another note, Bain was near death in the early 1990s but that doesn't seem to have affected clients' perceptions of it that much

Deloitte Consulting US is considered pretty solid. However, Deloitte Consulting is not considered as prestigious in other markets. Acquisitions like this and the Roland Berger attempt help them overcome the huge barriers to entry in pure strategy work that are a result of the network effects of the industry. It's a pretty classical reason to buy rather than build. The struggles of Monitor Group probably have little to do with a solid performing partner's relationship with their clients. If he/she was a solid advisor before, he/she will still be a solid advisor now. They are probably simply buying the partners with some relationships and paying off the equity shares to remaining partners who couldn't find business. It's easier to lock up those partners in Chapter 11 than let them become a "free agent" and go to some other firm. And getting them in Chapter 11 is cheaper than buying them out pre-Chapter 11.

This would make sense, if Deloitte had bought a company with a strong brand name in countries where Deloitte itself is rather weak (as you described, that was their reason for trying to buy Roland Berger). However, Monitor is also mostly focused on the US market. They even closed down lots of their European offices in the last years. So I really don't see how this aqcuisition will help Deloitte.

You might be right on whether Monitor really improves their presence in other markets versus the US. However, you are completely mistaken on how work is sourced. The brand name and stuff may matter for junior level person. At the partner level, it's the partner and their past work in the industry and their overall branding that matters. If the head of an MBB's telecom group goes to another firm, the clients will contact him for telecom work not the MBB. This is the whole reason consulting firms have equity partners, keeping their assets from walking away. If all the partners at an MBB or any top consulting firm in a given industry leave the firm (an extreme scenario), I assure you they won't be winning work in that industry. Once you get to partner, it's your brand more than the firm's brand that matters about selling work. Why else do you think all the firms have their industry insights publications written by their own staff?

Deloitte isn't buying the firm's brand; they are buying partner's brand and relationships. Winning work is about past performance, I'm guessing Monitor's struggles had to do with not getting enough work across the partnership. Nonetheless, I'm sure there were some partners who had work in certain industries. That's what they are buying. Easier to buy that in Chapter 11 than have them go off to some competitor.

BrotherBear, great posts overall! To your last part, I agree with you that Deloitte wants to buy the relationships of Monitor's partners. The problem is many of those partners are going to be jumping ship. There is going to be a feeding frenzy over the next few months of Large and Medium-sized strategy firms poaching partners, and I think they'll be very successful. Most Monitor partners (and employees in general) didn't join a firm like Deloitte for a reason. Many partners at a near-pure-play strategy firm like Monitor will not adjust well to the Deloitte world of implementation work.

Also, got some very reliable information that Monitor borrowed a bunch of money through the slump and it came back to bite them. Thus the chapter 11. I also disagree with MuddledMint. There's no way either firm wants Monitor to be in Bankruptcy, whether it would speed the transition or not.

People tend to think life is a race with other people. They don't realize that every moment they spend sprinting towards the finish line is a moment they lose permanently, and a moment closer to their death.

A lot of astute observations but also a bit of misguiding conjecture in this thread. Speculative assertions regarding the strategic nature of acquiring a recently bankrupt company aside, I can share some insights from talking to partners at a recent sell day event (and being provided some additional information emailed to all offerees).

Monitor will no longer Monitor - the brand itself will disappear. Everyone saying Monitor is pure-play strategy is correct, and the general understanding that Deloitte isn't a high-end strategy house is also correct. But where McKinsey and probably Bain/BCG to follow have historically been strategy-dominant and are now looking at more tech/implementation work, Deloitte took an opposite approach. They're known more for implementation and tech work than strategy, but as their company slides have shown for the past 3 years I've sat through their various presentations, they strongly value their "Strategy to Implementation" capabilities. They have the resources, both in terms of numbers of people but also diversity of competencies to be a one-size-fit-all provider. Do implementation work, upsell strategy work. Do strategy work, sell large implementation contracts.

Bankruptcy aside, the Monitor acquisition makes sense. The entire Monitor workforce will be integrated into Deloitte's Strategy and Operations division, but will further reside solely within the Strategy horizontal within S&O. The other horizontals within S&O (e.g. M&A, Supply Chain, Service Ops, etc.) will remain untouched and unchanged. By effectively bolstering their corporate strategy capabilities, Deloitte strengthens their high end strategy offerings, providing more opportunities for selling strategy work. Monitor's industry expertise and firm-wide strategy-focus highly complements Deloitte Consulting and Deloitte S&O.

So does it make any sense at all to consider a Monitor offer over an OW GMC offer right now?

Tough question, and I doubt most people have ever gone through such a decision process. Assessing the OW GMC offer is straightforward enough, but for Monitor it's a black box. Assuming you've already done your own research into Monitor, find out how the recent acquisition will change everything

"The most intense competition between consulting firms is for "whale" engagements. Undertakings with $20 million price tags such as the post-merger integration of a giant pharmaceutical client and its equally humongous acquisition. Or redesigning a company's entire store system and approach to customers. While BCG or McKinsey will still proudly help a client devise a corporate strategy, in the eyes of many in the industry such projects have become what retailers call "loss leaders" — products you have to offer to get the customer in the door, but not where you make the real money.

Ultimately what the consultancies are competing for are semi-permanent, year-in, year-out relationships with companies rich enough to pay scores of millions annually for help and advice. In this context, as the Olympian firms broaden their offerings, their challenge becomes maintaining their pricing power, their ability to charge strategy-level rates for types of work that consultants from Deloitte or Ernst & Young will offer to do for a lot less."

The inside story here is that several BIG partners (i.e. founders) left the firm amid the recession to pursue other interests, but they retained their equity. Thus the firm now had too much equity tied up in non-producing equity partners.

This seriously harmed Monitor's ability to pay competitive salary and bonuses at the most senior levels. A few rising stars were poached, and the writing was on the wall. Become a de facto farm team for McK, Bain and BCG and tread water for as long as you can---or fix the problem.

The only way to wipe out that equity is Chapter 11. The problem is that you then ruin the brand...unless it is a clearly orderly bankruptcy to assist in the sale to a bigger, more diversified owner out of bankruptcy.

Monitor was neither shrinking nor losing clients. As a going concern it was perfectly fine. The choice was made to disburse some cash rather than make a few rent payments and then file.

Clients were prepped in advance and the announcement was clearly coordinated with the Deloitte acquisition. Nobody in the industry really believes that Monitor needed rescuing, it needed a way to fix it's ownership structure to be competitive again.

The Deloitte deal does that. If Deloitte retains the brand it will be a fairly clear signal that this was a strategic bankruptcy to force external equity holders to heel. Internal equity holders will take a haircut too, but they have jobs, bonuses and equity in Deloitte to look forward to.

That is that. Financial engineering designed to correct a problem that should have been addressed in the original corporate equity agreements, but was not.

The inside story here is that several BIG partners (i.e. founders) left the firm amid the recession to pursue other interests, but they retained their equity. Thus the firm now had too much equity tied up in non-producing equity partners.

This seriously harmed Monitor's ability to pay competitive salary and bonuses at the most senior levels. A few rising stars were poached, and the writing was on the wall. Become a de facto farm team for McK, Bain and BCG and tread water for as long as you can---or fix the problem.

The only way to wipe out that equity is Chapter 11. The problem is that you then ruin the brand...unless it is a clearly orderly bankruptcy to assist in the sale to a bigger, more diversified owner out of bankruptcy.

Monitor was neither shrinking nor losing clients. As a going concern it was perfectly fine. The choice was made to disburse some cash rather than make a few rent payments and then file.

Clients were prepped in advance and the announcement was clearly coordinated with the Deloitte acquisition. Nobody in the industry really believes that Monitor needed rescuing, it needed a way to fix it's ownership structure to be competitive again.

The Deloitte deal does that. If Deloitte retains the brand it will be a fairly clear signal that this was a strategic bankruptcy to force external equity holders to heel. Internal equity holders will take a haircut too, but they have jobs, bonuses and equity in Deloitte to look forward to.

That is that. Financial engineering designed to correct a problem that should have been addressed in the original corporate equity agreements, but was not.

Couldn't have said it better myself... and trust me this IS the inside story.

Any new news on this? I think Mfs' take is an interesting and sounds quite plausible. I'm wondering though, how the large influx of legacy Monitor employees will affect existing Deloitte S&O consultants. Particularly Monitor employees entering at the Partner-level. Like Monitor, Deloitte partners share in the equity. But it also has other segments (audit, financial services, tax, enterprise...) where there are people up for a limited number of promotions... so the year to year promotion to partner is likely, as with most firms, a political-ridden event. And with more partners sharing the pie that may not grow as quickly (or something they want to limit, since there's also the element of retiring partners entitled to equity, pension and etc) I can't imagine this to go over too well with everyone internally.

I'd imagine there'd be a lot of cheesed off senior manager levels (those just on the cusp of being promoted to partner) that will see their partnership promotion being pushed back some time...

If you've been following the news over the last few weeks, you may have heard that Monitor Group, the highly respected consulting firm, declared bankruptcy and is in the process of being acquired by Deloitte.

The question everybody has been asking is, what the heck happened?

To many Monitor was considered the #4 firm behind McKinsey, Bain and BCG. In my year, I knew people who declined MBB offers to go work at Monitor - yes Monitor was respected THAT much.

At McKinsey, I had colleagues who read everything Monitor co-founder Michael Porter ever wrote. The word brilliant came up more than once.

So what happened?

To answer that question, I'll share with you my perspective on Monitor's fall, what we can all learn from it, and what it means for you.

Let's start with the basics of why a firm, any firm, goes bankrupt.

A firm goes bankrupt when it no longer has enough cash to pay its bills.

This is usually correlated with Revenues < Costs, but not always. I'll elaborate on why in a minute.

Traditionally a firm will fail for one of two reasons:

1) Not enough sales (or profit margin) 2) Too much sales

The first reason is more intuitive. When your revenues are less than costs, at some point you can't pay your bills.

The second reason is a little counter-intuitive, so let me explain that one in more detail.

First, it's important to realize that in my writings to you, I spend most of my talking about strategy.

It's important to keep in mind that strategy differs significantly from how one executes or operationally implements that strategy.

In strategy, we focus on profits... where revenues exceeds costs.

In operations, we (relatively speaking) focus less on profits, and focus much more on cash inflow vs cash outflow.

However, when you're running a company there are material differences between revenues and cash inflow, and differences between costs and cash outflow.

These differences are based on the TIMING of when the cash related to a particular order is actual exchanged between customer and company.

The same is true on the cost side. A cost is incurred when you sign a deal with a vendor, but cash outflow is only triggered on the day you actually PAY the bill.

As a general rule, it is advantageous for a company to get paid by customers immediately, and to negotiate to deliberately pay your bills 30, 60 or 90+ days after a supplier provides their product or service. Under these ideal circumstances, a company has a "positive cash flow"
cycle.

Most Fortune 500 companies have the negotiating power to have a positive cash flow cycle.

For example, if you want to sell your products in Wal-mart, they will place a $10 million order today, but pay you for that order in 4 - 6 months. (Keep in mind this is negotiated, and any vendors that say no don't get the order).

Conversely, if you get paid for your products and services months after the fact, but you must pay your employees and suppliers immediately, this is a negative cash flow cycle.

A small business that's trying to sell to a Fortune 500 customer, will often have a negative cash flow cycle.

They'll land the $10 million order from Wal-Mart, but have to find some way to pay all their expenses until Wal-Mart pays their bills several months later.

As a result, it is possible to go out of business by having TOO MUCH revenue (and not enough cash to pay all the expenses during the period between when the order is received and the bill is actually paid by the customer).

My consulting practice covers both strategy and operations.
With my clients, I am ALWAYS talking to them about cash flow. I am constantly reminding my clients that a strategy or an idea isn't fully implemented, until the "cash is in the bank".

It's very easy for a CEO to approve an idea, but sometimes neglect to verify if that idea actually produced cash 6 or
12 months later.

It's very important to verify that cash actually got to the bank, because quite often the cash you thought a strategy was supposed to generate, doesn't always materialize.

This happens for countless reasons -- you had flawed assumptions in your original analysis, your analysis was correct but there was some hidden problem in execution, you're wasting money somewhere in the business without realizing it.

Welcome to the headache known as operating a business.

In my own business, the first thing I do each morning is to check my bank account balance to make sure the cash level is what I expect it to be. When operating a business, cash is your life blood.

This is analogous to what a doctor does in the intensive care ward of a hospital. When a doctor enters the room, the first thing she does is ti check your vital signs (pulse, blood pressure, something called blood oxygenation level -- how much oxygen is actually getting into your blood).

Having spend hundreds of hours in intensive care as a family member, I had many opportunities to observe what the doctors do. The reason they check for things like pulse and blood pressure is very simple. They do so to see if you're dead, alive or somewhere in between (as is often the case in intensive care).

Yes, it is that simple -- after all most of the patients are not awake and well, it's kind of heard to tell if someone is alive, dead, or just sleeping.

It is the same with cash. As a smart business operator, you watch cash to verify your business is not dead. Hey, it's a pretty useful discipline.

As my mother taught me when I was 10 years old, "Victor if you have enough cash, you will NEVER go out of business." (I have an unusual mother.)

When I was 11 years old, I used to wear a bright yellow T-shirt around school that said, "Happiness is Positive Cash Flow." (My teachers always thought I was a weird.)

As it relates to Monitor, they most definitely did NOT have positive cash flow, and they were most certainly miserable about it.

So what happened to Monitor's cash? And why did Monitor fall, when other firms did not?

While there are many reasons, I'd speculate their #1 underlying "root cause" issue was likely...

DENIAL

Monitor underestimated the severity of the problem they had, they did too little to address the problem (i.e., magnitude of solution = magnitude of PERCEIVED problem... but....
magnitude of solution < magnitude of ACTUAL problem), and acted too late.

What likely happened was Monitor was negatively impacted by the global recession of 2008. However, many other firms were as well and they survived.

However, Monitor also suffered a scandalous blow to their reputation when the media discovered the Libyan Dictator Moammar Gadhafi was a client that hired Monitor to improve his image in the Western media.

In particular, Monitor worked on Gadhafi using means of questionable ethics. In addition, as part of that engagement, Monitor helped one of his sons to write a dissertation for his PhD from the London School of Economics.

(There's a lesson on protecting one's reputation that I'll circle back to in a few minutes.)

So between the recession and reputation damage, that almost certainly caused a structural decline in Monitor's revenues.

At the time, in 2008, the best I can tell Monitor had around
1,500 consultants in 27 offices. While they reduced the number of employees by about 20% and closed a few small offices, it clearly wasn't enough.

They should have cut much more deeply in order to survive.
They didn't and 4 years later in 2012, they ran out of the cash needed to support an unprofitable business.

Remember even with a negative cash flow cycle, if you have enough cash in the bank you can survive long enough to hopefully improve the cash flow cycle. Monitor ran out of time and money.

If you've been following my work for any period of time, you'll recall how much I emphasize (and continue to use to this day) my profitability framework.

I've recommend that you use it, I use with my clients, and I use it for my own business because well, profitability is like really, really, really important.

That's an understatement!

Monitor started becoming unprofitable in 2008 due to both the recession and the news around Gadhafi. They cut expenses by 20% to be at least break even in profitability.

Then between 2008 - 2011, sales continued to decline and rather than cut expenses further (and risk signaling to the world that they were having problems), Monitor likely decided to continue to run the firm at a financial loss in hopes that either:

1) the economy and therefore sales would improve soon, or 2) enough money could be borrowed from outside investors to fund the losses until sales could recover

They miscalculated on both fronts -- the revenues did not recover on their own and despite initial success in borrowing around $50 million from an outside investor, they were unable to get a follow on investment and ran out of cash.

Monitor's bankruptcy is not only a major failure, but it's a particularly humiliating failure. This is precisely the kind of problem that clients hire Monitor to solve of them.

It's like finding out your doctor who has been telling you to stop eating so much sugar, has diabetes.

It's embarrassing to say the least.

I mean at this point would you ever hire Monitor for a profit improvement project?

THREE KEY TAKEAWAYS

In look at the Monitor situation, there are... (wait for it...) THREE key takeaways:

1) ALWAYS Protect Your Reputation

As Warren Buffet says, it takes a lifetime to earn a good reputation. It takes a few days to lose it all.

This is worth remembering in your career... especially a career in consulting where the "product" basically is your personal reputation or your firm's reputation.

Reputation comes in two flavors:

a) integrity of words and actions, and b) reputation by association

The first is about actually believe in what you say and to act in a reliable way towards others.

For example, when I recommend a particular skill, process or behavior in a case (or with a client) and you follow my advice, if it worked out well for you, might reputation in your eyes goes up. If I told you something that did not work or was flat out incorrect, then my reputation goes down.

Thankfully my reputation over the years has gone up on more occasions than it has gone down. It takes a lot of work and care to make that happen. It does not happen by itself.

Last year, my writings and influence were read by CIB and working consultants in 212 countries -- which is amazing to me. Anecdotally, I'm told that upwards of 50% of the new consultants at MBB are followers of my work in countries ranging from Australia, Nigeria, Malaysia, South Africa, and of course the US, and EU.

How did my reputation grow to seemingly span the world?
(Which again continues to amaze me).

The short answer:

One sentence at a time.

(In your case it might be one meeting at a time, one presentation at a time, one analysis at a time, one day at a time... it's daily consistency on the micro, that leads to the macro reputation.)

The second form of reputation is reputation by association.

You are judged by the company you keep... in other words you're reputation is assumed to be of the same as the reputation of the people around you.

Conclusion: Be CAREFUL who you associate with.

Gadhafi as a client? Maybe not the best choice.

Helping a client's son cheat on his dissertation at the London School of Economics? Perhaps one should think twice on that one.

Do you really want to be know as the "go to" firm that specializes in cheating and manipulation? The preferred consulting firm of dictators everywhere? Is that REALLY the reputation you want for your firm?

As one Monitor consultant said after the fact...and I paraphrase "we screwed up royally."

I have been saying for years that the largest expenses I "see" on a company's financial statement are the pride and ego of its leaders.

Of course pride and ego are not actual expenses of the company, but the expenses incurred in protecting one's pride and ego can in my experience be ENORMOUS.

What likely happened with Monitor is they continued to shrink even after their initial staff reductions. Rather than continue to cut expenses to be in alignment with the new market demand, they consciously allowed expenses to be higher than revenues.

This is very RISKY.

Why would a bunch of highly intelligent business leaders rationally run a business unprofitably?

Well rational leaders wouldn't (or at least not for very long).

But leaders who had their pride and ego tied up in the business, and couldn't bear the thought of having the world think less of them might.

They decided that rather than admit a moderate defeat, they would rather be in denial, pretend nothing was wrong until they accumulated a massive defeat in the form of a bankruptcy failure.

To be fair, there is another perspective more flattering (or less unflattering) portrayal of what went wrong.

Lets say that sales dropped off, and Monitor continually slashed variable costs (i.e., salaries) to keep pace. I didn't see any mention of this in the news other than the original 20% cut in 2008, but it's possible it happened quietly.

At that point, perhaps their fixed costs such as leases and loan payments on buildings were so high and nearly impossible to reduce partially, without eliminating entirely (e.g., maybe they ideally tried to shrink the real estate size of each office by 50% but perhaps nobody else wanted it, they only wanted 100% of it).

While this is possible, I'm a bit skeptical this is what happened as they had nearly 4 years of time to restructure their costs to be profitable. That's typically more than enough time to shed costs -- provided you intended to do so aggressively.

As an example, when Steve Jobs re-joined Apple as CEO, he took over Apple when the company had roughly 90 days of cash left in the bank. Only 90 days before the company was bankrupt. Jobs stopped the Apple from "bleeding" cash and did it in 90 days.

In comparison, Monitor had closer to 1,400 days to do the same, but couldn't.

Slashing costs is not difficult. It is, however, extremely unpleasant.

Medically speaking, cutting off a patient's leg to save their life is not mechanically difficult, nor logically difficult. Alive with one leg is logically better than dead with two legs.

This makes completely rational sense... unless you're person with the axe and it's your right leg were talking about. Can you really lift the axe up and swing it down?

I know it's a bit of a gruesome visual, but this is basically (sort of) the sort of "tough decision" that both Steve Jobs and Monitor faced. Jobs was willing to swing the axe. Monitor opted for using nail clippers instead -- not enough in the end.

If you look at where Apple and Monitor are today, I think the results of those pivotal decisions speak for themselves.

(And I'm going to apologize in advanced to any Harvard folks reading this).

Lets say you have a hot shot Harvard undergrad, who also has a Harvard PhD working at MBB.

In one of his early engagements, he discovers the client has been focusing on a segment of the market that's shrinking in size where profit margins have eroded.

The consultant recommends the client switch market segments to a different segment -- one that's growing and much more profitable.

After the final presentation, it's very easy for that consultant to think:

Geez... it was like so OBVIOUS the client was focusing on the wrong segment. I can't believe they didn't do this on their own. Clearly, I / we are smarter than they are, and that's why we earn the big fees.

Now nobody in consulting that I know would say that out loud, but I know a lot of people who quietly think this to themselves.

In fact, at some level, I used to think this way... that is until I ended up going to industry, helping to run public companies, and becoming a business operator of my own.

Lets say I have WAY more empathy for my previous clients than I did at the time.

Execution is HARD.

Let me give you an example.

Since were on the topic of Apple (which I am a fan of), let me give you an example.

Apple has one glaring vulnerability. It has extraordinarily high profit margins. You could slash Apple's profit margins by 50% and it would still be an incredibly profitable company.

The entire history of technology and Silicon Valley is one of initially inferior technology that's dramatically cheaper, eroding the market position of a superior high priced technology (e.g., PC's vs mainframe computer).

To oversimplify, one strategy is to compete against Apple at the low end of the market by selling products at 30% of the the price that are 70% as good.

That's "obvious" right?

Now, to actually do that is HARD.

Apple has decade long exclusive contracts with ALL the major component suppliers in the world. They get preferred pricing and they get supplied first before you do. You have to replicate that somehow.

Apple has an enormous head start on innovation and design.
You'd have to come close to matching that.

Apple has an enormous portfolio of patents.

Apple has a ton of cash.

Apple has an incredible brand following.

Apple has... well a lot going for it.

To compete against Apple requires billions of dollars, incredible levels of talent, enormous resources in 100 countries around the world to all execute simultaneously and then maybe, maybe it might work... barely.

Hardly easy.

As a consultant, I thought strategy was "hard" and operations "easy".

Today, having been (and continuing to be) both strategist and operator, my point of view has changed completely.

Strategy is "easy" and operations is "hard".

At this point in my career, I can take pretty much any business and within an hour or two find the core strategic issue and often figure out how to fix it. Basically, my initial client meetings are really just what you and I would call a case interview. The difference is my meetings are usually over the phone or over lunch.

Now, it might take that client working 12 hour work days, 6 days a week, and getting THOUSANDS of employees to change what they do every day... and to nudge, push, fight, and battle every work day for 10 YEARS to execute what I sketched out on the back of a napkin over lunch.

If you want to know WHY those in industry sometimes dislike and criticize consultants? It's because many of them completely fail to grasp the last 3 paragraphs.

Confirm your name and e-mail below to get our best tips

Don't Miss This Awesome Related WSO Content

I can't seem to find any old threads that address the exit opps that come after working at Accenture and Deloitte. The only information that I've gotten from reading about these two firms is: Deloitte isn't good, and Accenture is the "kiss of death". I know these two...

Hi guys, As the mid-tier of the consulting industry consolidates, can anyone speculate what might be in store for other firms who are left behind by PwC and Deloitte 's moves to provide a full service consulting offering? At a recent networking event with Booz (now Strategy&) employees,...

I was recently invited to a first round interview for Monitor 's summer internship program. The interview is on February 4th, and I found out about it this past Saturday. In all honesty I was not expecting to receive an interview offer so I stupidly did not start preparing for the...

My friend has all 3 offers for FT, and I told him I'd help him make the decision. Which one? At first, I wanted to tell him to go to Monitor but according to a friend at Mckinsey, he said he would be at ATK if he didn't get MBB or OW FS. Any suggestions?

1) Does Deloitte S&O offer summer internships? I've been looking around but I can't find anything on their website. 2) Is it even worth it to apply to Monitor for 2013 summer internships? Or is the Monitor brand completely going away?

Any thoughts on how Deloitte buying Monitor will change the power shift among consulting firms? From my understanding, Deloitte 's Strategy/Operations line is acquiring Monitor; does this position them to make a run for Tier 1 or elite Tier 2 status?

Highest Ranked Content

<em>Mod note (Andy): throwback Thursday, this originally went up on 8/22/12.</em>
As much as it may be stated on this site, networking is one of the key factors in the success of most young professionals in finance. Whether it is gaining valuable advice, or getting a leg up in...

I've been exchanging PMs with a fellow poster who didn't like his current role and had the good sense to line up another job.
With his permission, I've pasted below the advice I gave him on how to tell his current employers that he's exiting. I've made a few tidy up...

Wall Street Oasis is looking for several hard working individuals to join our intern team to help with online-marketing tasks, specifically Search Engine Optimization (SEO) and link-building.
<strong><a...

<strong><span class='keyword_link'><a href="https://gv142.isrefer.com/go/wso35/wsoasis/">Financial modeling</a></span></strong> is a skill that any investment banking analyst will have to master. Although the majority of <span...

<strong>***NOTE: I am willing to pay cash AND give you a free copy of the package if one of your cases or pitches ends up in the actual guide.***</strong> Please send me an e-mail ([email protected]) explaining the case or pitch (long vs. short or type of case study) and...

Our risk tolerance is highly influenced by our psychology. We are not willing to take the same risks in the short or long term or if we have just lost a lot of money. Over the past 30 years, behavioral finance has worked on integrating these psychological factors into the traditional financial...

Hey WSO,
I used to be fairly active on this forum but ever since I started at <span class='keyword_link'><a href="http://www.wallstreetoasis.com/guide/consulting-case-interviews">MBB</a></span>, I got way too busy (no surprise there). I'm about...

As the NASDAQ approaches historic highs, Apple&#8217;s market cap exceeds that of the Bovespa (the Brazilian equity index) and young social media companies like Snapchat have nosebleed valuations, there is talk of a tech bubble again. It is human nature to group or classify individuals or...

Forum Topics

One colleague took a very hard decision recently. He had offers from two BB banks (not GS/MS/JPM) for junior analyst roles.
He finally decided to stay in Madrid because he thought that:
1) Madrid's office is much smaller than London's -> learn faster, less level of expertise, but...

Random title, but I bought three solid suits from Brooks Brothers about 6 months ago. Two are a really nice Madison fit. All very nice quality in terms of the material and craftsmanship.
The only thing bugging me is that the tailor may have screwed up on the shoulders a bit. He did put in the...

Graduating senior looking for advice, reached out to almost 300 people in recruiting so far. I am from a non-target school in Chicago (all Big 4 come here for accountants though), decent gpa and PE experience. I have had interviews at <span class='keyword_link'><a...

Graduating senior looking for advice, reached out to almost 300 people in recruiting so far. I am from a non-target school in Chicago (all Big 4 come here for accountants though), decent gpa and PE experience. I have had interviews at <span class='keyword_link'><a...

Interviewing for a Branch Analyst internship at a <span class='keyword_link'><a href="http://www.wallstreetoasis.com/finance-dictionary/what-is-the-bulge-bracket-BB">BB</a></span>. What type of interview should I expect? More tech or <span...

<a href="http://www.goldmansachs.com/our-thinking/outlook/millennials/index.html">Goldman Sachs released an infographic late last week</a> that shows <strong>how the Millennial generation will transform the economy</strong>.
The study shows what's trending...

I just got on the board of a company. Do I put this on my resume under work experience? Just doesn't seem like a real job because it's a monthly thing and it's not connected to my actual job, it's something separate. Additionally, what kind of experience would I write under...

There's a ton of great information on here about the FT program that I have enjoyed reading, very little available on the internship. I'm interning this summer with GE at one of their US HQs (not capital). I wanted to see if anyone on here has interned with GE and can offer any advice on...

I am a college junior ready and eager to start my summer at a big firm. I have been interning my entire college career and am lucky enough to have a few offers on the table. Mind you, I do NOT go to a target school. My offers from <span class='keyword_link'><a...

For those who have purchased custom (bespoke) suits before, where did you go and how was your experience? I have gotten a few recommendations for Enzo Custom Clothiers and J Lucas Custom Clothiers. They offer the full custom tailoring experience at very reasonable price points. Has anyone had an...

Hi all,
I wanted to create a thread, (apologies if one exists already, in that case happy if you point me towards it) on people’s experience with making the switch from IB to <span class='keyword_link'><a...